DoJ Softens Apple Injunction, but Hits Macmillan Hardest

By Andrew Albanese
|

Aug 23, 2013

In a revision of its proposed injunction, DoJ attorneys took judge Denise Cote’s suggestion to heart, and agreed to stagger the renegotiations of Apple and the publisher defendants. Under the revised proposal, Apple must still terminate its current e-book agreements with the defendant publishers, but rather than five years, the ban on using straight agency now ranges from two to four years.

Under the revised proposal, Apple and Hachette would be the first to be free to renegotiate a straight agency deal, 24 months "after the Effective Date of the Final Judgment."

The final two publishers to settle come last, with Penguin allowed to renegotiate at 42 months after the Effective Date, and Macmillan at 48 months—a full four years—after the Effective Date.

It is not clear, however, when the actual terms will begin, as the "Effective Dates" of the proposals can be adjusted to apply retroactively, and do not have to begin with the actual date of the court's final order.

That Macmillan comes last is no surprise, as both DoJ attorneys and Judge Cote have repeatedly cited Macmillan CEO John Sargent for his defiance, and for his “non-credible” testimony at Apple’s trial. It probably did not help that Sargent called DoJ attorneys “incompetent” at an event in May of this year, just days before the Apple trial began. In its proposed revision, Apple also took up Judge Cote's suggestion to stagger negotiations with publishers, but wants the right to determine the order of renegotiation.

Not surprisingly, attorneys for Apple and the DoJ were able to find almost no common ground after being ordered by the court to confer on the contours of a proposed injunction in Apple’s e-book price-fixing case.

“Despite having been found liable and not credible under oath, Apple, its executives and its counsel, continue to assert they did nothing wrong,” note the DoJ officials in a brief submitted with their modified proposal. “Under these circumstances, this Court should have no confidence that Apple on its own effectively can ensure that its illegal conduct will not be repeated.”

DoJ attorneys say that Apple’s proposals made in conference with the DoJ would would impose “virtually no limitations on the company’s conduct beyond those already in place through the Publisher Defendants’ settlements,” and, in several respects, "Apple’s proposals were less restrictive than the injunctions agreed to by the Publisher Defendants as part of their pre-trial settlements.”

Apple attorneys, meanwhile, respond that Apple has “bolstered and improved” its internal antitrust programs, “including the hiring of two seasoned antitrust lawyers with extensive experience at both the DOJ and the FTC.” Apple also says it will devote “even greater resources to antitrust compliance” going forward.

“Notwithstanding this unconditional commitment, plaintiffs insist on imposing an external monitor on Apple in addition to a new employee devoted solely to antitrust compliance. This is unreasonable and unjustified.”

As for the company’s continued defiance, Apple attorney Orin Snyder insists there is “nothing inconsistent between Apple’s commitment to a strong program and culture of compliance and its defense of this action, including on appeal.”

Nevertheless, the DoJ has offered some decent concessions to Apple in an attempt to address the court’s concern “that the e-books market is rapidly evolving" and that an injunction against Apple should "avoid unnecessarily hindering" the market development.

Among its most important concessions, the DoJ has proposed cutting the length of the proposed injunction from ten years to five years, but with five potential one-year extensions should “circumstances make continuation” of the decree necessary.

“To be clear, Plaintiffs dispute any notion that provisions limiting improper conduct or requiring antitrust compliance are unnecessarily invasive or harmful to competition,” the DoJ argues. “Nonetheless, by shortening the length of the applicability of those provisions, Plaintiffs ensure that Apple will not be ‘locked in’ for an extended time to a set of terms of which changes in the industry could alter the import.”

The granting of an extension would be at the sole discretion of the Court, and Apple would be allowed to argue why it believes an extension is unwarranted.

At the August 9 conference, Judge Cote said her preference would be not to have to appoint an external monitor at all, and for Apple to convince her of the company's own vigorous internal compliance regime. The DoJ, however, will now argue that the fruitless talks over the last two weeks augurs their belief that Apple cannot be trusted.

"This Court found that the conspiracy was hatched and carried out at the highest levels of Apple, by individuals running the company and shaping its identity," the DoJ argues. "They violated the antitrust laws not in secret, but in plain sight of Apple’s internal lawyers—who were either unwilling or unable to stop the illegal conduct. Almost all of these executives are still at Apple, in positions of increased authority. It is simply unreasonable to assume that an internal compliance lawyer, entrenched in that culture and beholden to those executives for his or her position and remuneration, will alone be able to effectuate the necessary changes."

In addition, the DoJ has also removed some of the language from the initial proposed injunction that Apple argued would affect its ability to effectively run its App Store—most notably a section that would affect the regulation of e-book apps purchased through the App Store. However, a provision remains that would allow e-book retailers hyperlink to their own bookstores without paying Apple a commission on sales for two years.

"Returning to the pre-conspiracy policy will result in greater price transparency," DoJ attorneys say, "and keep Apple from continuing to reap profits from its collusive behavior."

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